Six years after its launch and post multiple overhauls, Pradhan Mantri Fasal Bima Yojana (PMFBY), India’s flagship scheme for crop insurance, has largely failed to deliver on its objectives. An expert committee steered by Ashok Dalwai recently submitted a report showing that, between 2016 and 2021, PMFBY saw a decline in participating farmers (362 lakh to 248 lakh) and States (22 to 19), with shrinking coverage (474 to 387 lakh hectares), despite a sharp rise in premiums.

PMFBY offers farmers compensation for crop losses arising from non-preventable risks such as drought, floods, pest and disease attacks. Premiums for insured clusters are discovered through a bidding process. Farmers are expected to make only nominal premium payouts (1.5 to 2 per cent); the bulk of the premium is shared equally between the Centre and States. But with farmers complaining of uncertain claims payouts, States dropping out and the Centre seeing limited results on the ground despite rising budgetary allocations, PMFBY is in urgent need of an overhaul.

The main grouse that States have with PMFBY is that while premiums are distributed evenly across participants, claims are cornered by a few. The expert committee has found some truth in this complaint. While the average claims realisation ratio (claims-to-premium) of all States participating in PMFBY was just 12 per cent, a fifth of the districts realised claims of over 100 per cent. To resolve this, the committee suggests setting differential premiums based on actual yield variations across districts and crops. It has used extensive data analysis to arrive at ‘vulnerability rankings’ for individual crops and districts. The government should use this data to set realistic premiums. Farmers seem to be disenchanted with insurers demanding complex documentation at the last minute while filing claims. Capturing all details on the insured crop at the time of registration, can address this. The scheme relies heavily on technology - mobile apps and the National Crop Insurance Portal - for reporting crop losses. Given sub-par connectivity and digital literacy in rural areas, intermediaries such as Farmer Producer Companies must be roped in to aid farmers. State governments need to avoid inordinate delays in premium payments which hold up claims.

The Centre may also need to re-assess the need for private participation in the scheme. While PMFBY has empanelled twelve private insurers, Agriculture Insurance Company (AIC) and four PSU insurers in the scheme, there have been recurring complaints about higher claim rejection ratios and windfall profits for private insurers. Private insurers have also tended to blow hot and cold on the viability of this business. As the PMFBY is essentially a welfare scheme to offer a safety net to farmers, there appears to be no compelling reason to strive for commercial motives in its design. Presently the Centre and States make massive budgetary allocations towards agriculture by way fertiliser subsidies, free power, interest subvention and so on, besides periodic waivers of agricultural loans. Rationalising all these schemes and utilising the savings to fund premiums for a crop insurance scheme run by a State-owned agency such as AIC, may make the PMFBY simpler and workable.

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